09.18.13

Saving Critical Resources for a new Detroit. Detroit and dozens of its 100,000 creditors yesterday opened an extraordinary process of confidential mediation sessions under federal judicial auspices that could both accelerate an earlier exit from bankruptcy, but, more importantly, save millions of dollars critical to a post-bankruptcy Motor City—both for investment in critical improvements and services—and for preserving critical resources to meet promised pensions and post-retirement benefits for its employees and retirees. Chief U.S. District Court Judge Gerald Rosen, the head mediator was clear: “This is about the future of the city and this region. Open your minds to areas where we can reach agreements…As difficult and challenging as the issues are, the alternative to an agreed upon plan of adjustment…is horrendous.” The mediation sessions are closed to the public and confidential.

Judge Rosen will not just be the point-person for negotiations with the city and state, shuttling among talks with various creditors, but also the ringmaster over a team of federal judges, in an unprecedented effort. Judge Rosen yesterday announced the following assignments for his mediation team:

■ Portland, Ore.-based U.S. Bankruptcy Judge Elizabeth Perris will mediate a dispute between the city and bondholders, including those opposed to a proposed settlement of about $250 million in debt on interest rate swaps with banking giants UBS and Bank of America. Judge Perry made clear to the parties under her purview: “This is a procedure; it’s not going to happen overnight.” Detroit is seeking a quick resolution to the dispute in an effort to slash about $50 million in annual debt payments and free up $11 million in casino tax revenue to spend on public safety services. At issue in the disputed settlement is one insurer of Detroit’s pension debt, Syncora Guarantee, which is trying to lay claim to the casino money. Judge Perry had joined the other members of the judicial mediators Monday evening on a bus tour throughout Detroit to see the city and its challenges up close, after which she stated: “That makes me all the more motivated about the mediation being critical…Being mired in years of litigation is not an option. That is not going to benefit the city or the parties.”

■ Detroit attorney Eugene Driker, a 50-year veteran lawyer and dean of the Michigan bar, will mediate disputes involving the city’s pension funds. Counselor Drinker noted: “No matter how imposing the task, if you keep talking, and people want to participate, you can come to a solution.”

■ U.S. District Judge Wiley Daniel of Colorado was assigned to talks involving retirees. Judge Daniel spoke to the heart of the matter: “At the end of the day, the future of the city and the region is at stake.”

■ U.S. District Judge Victoria Roberts of the Eastern District of Michigan will handle mediation with unions, including the UAW and the American Federation of State, County and Municipal Employees.

■ Retired U.S. Bankruptcy Judge David Coar of Illinois will mediate disputes involving the Detroit Economic Growth Corp and Downtown Development Authority. Judge Coar, mayhap, put it succinctly: “I am trying to get people to do what they don’t want to do…It will be tough, it will be emotional at times. But if you are willing to come up with a fair solution, this is an opportunity for Detroit to be greater than it has been in the past.”

Emergency Manager Kevyn Orr and about 90 lawyers representing city pension funds, unions, retirees, the state and bondholders attended the joint mediation session at federal court in downtown Detroit. Negotiations will continue through the coming weeks before all parties return to Detroit for additional negotiations Oct. 8-9.

Protecting the Motor City’s Retirees. Meanwhile, U.S. Bankruptcy Judge Steven Rhodes this week said he would consider a motion filed by a retiree creditors committee to put a stay on Detroit’s eligibility for bankruptcy. The retiree committee, which represents more than 23,000 people who once worked for the city, has asked Rhodes to hold off on any hearings or decisions related to the city’s ability to qualify for Chapter 9 federal bankruptcy protection until the issue of eligibility is decided by the U.S. District Court. The committee argues Michigan’s constitution bars pension benefits from being reduced, and believes a U.S. Bankruptcy Court judge “cannot determine the constitutional limits of its own jurisdiction.” The retiree committee is asking Judge Rhodes to put all deadlines related to Detroit’s eligibility on hold.  Judge Rhodes has scheduled a 3 p.m. Thursday hearing to consider the request from the Official Committee of Retirees for a delay that could slow down the relatively fast-paced proceedings—that hearing will follow a hearing he has scheduled for tomorrow morning to hear testimony from dozens of individuals who have objected to the city’s eligibility for bankruptcy, mostly on grounds that the debt restructuring could lead to cuts in pension and retiree health insurance benefits.

Votorama. Candidates for Mayor of San Bernardino this week outlined their positions on public safety and for getting their city out of bankruptcy in the first forum of the campaign season. Ten of the 11 candidates running in the Nov. 5 election attended the evening forum at Cal State San Bernardino, sponsored by the San Bernardino Police Officers Association. With the incumbent Mayor not seeking a third term, the election has drawn a crowded field, including three current council members: Chas Kelley; Wendy McCammack and Rikke Van Johnson. In addition, building contractor Rick Avila, economic development consultant Concepcion Powell, financial analyst Henry Nickel, retired teacher Richard Castro, public works employee Draymond “Dray” Crawford, accountant Carey Davis, real estate, mortgage broker Karmel Roe, and start-up founder Matthew Korner have each thrown a hat into the ring. Mr. Korner attended, but did not participate due to his objection to the police union’s activities as a political action committee. The city’s financial problems dominated the discussion, with the three council members asked why they should not be held accountable for the city’s bankruptcy. Ms. McCammack and Mr. Kelley both said they had voted against previous years’ budgets: they blamed council allies of Morris, with Mr. Kelley also noting he voted against filing for bankruptcy. Ms. McCammack said elected officials should get out of the way of the city manager. Other candidates blamed the city’s problems on failed policies. But the forum also tackled the city’s famously dysfunctional politics, with Messieurs Roe and Nickel among those calling for charter reform. All the candidates promised, if elected, to hire new police. In addition, the Majority backed an audit of how California’s Measure Z funds were spent, in response to a question of whether the voter-approved tax increase for public safety was misappropriated.

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